August 21, 2013

In this week’s Weekly Wealth Digest I would like to share a few personal stories as well as ones that I have learned from friends and mentors in my own life.

Here are 7 mistakes to avoid as a wealth builder, there are plenty more but these are the ones that really stand out.

#7 Overextending yourself, I have to plead guilty on this one. Since I was 18 years old buying houses, stocks, and businesses, in the past I showed no discipline for saying “no” to a good deal. This overextended me, brought an enormous amount of stress into my life, and even forced me to sell a few good investments in order to remain solvent on others that were giving me problems.

The lesson I learned over time was that the deal of a lifetime happens everyday. There is always an undervalued stock somewhere, there is always a desperate seller on that perfect rental property, and there is always a business owner who needs a quick sale or is willing to finance the deal. Be patient, if you are in the market looking for a deal, trust me, you will find it! Don’t worry about passing on a deal, another one will come tomorrow if you are looking.

#6 Not backing out of a deal in order to not upset someone else. I have literally went through with real estate transactions because I felt that I already put the realtor or loan officer through too much for me just to back out in the end. These deals cost me money and put me in a bad financial spot, all for what… so I didn’t offend my realtor or upset someone whose only interest in the deal was to collect their commission. Big mistake and many of us do it on stocks, real estate, cars, and much smaller projects like home renovations. You commit to something and later have buyers remorse, but instead of canceling you go through with it.

This is a tough one, but you have to do what is best for yourself, remember it is your money. In the past few years I have backed out on two real estate deals on the day of closing! I know, blasphemy in the real estate world, but I had no choice. In both cases the loan terms changed and I was forced to piss off the realtors, escrow agents, loan officer, seller, and everyone involved; but in the end I protected my money.

#5 Investing on impulse. Buying because a newsletter writer or CNBC talking head throws out a ticker is going to cost you money. You need to be in the habit of learning about your investments (including day trading), spend at least a few hours researching day trades and spend a few days or weeks prior to making a longer term investment.

Ihave always lost money when I felt rushed into buying.

#4 Buying the dip for the sake of buying the dip. Buying a good investment when it is down is a great strategy for accumulation, but many people I speak with have this idea that just because a stock or investment is down, that it is now guaranteed to bounce. This strategy was a disaster for those buying tech stocks in the 2000’s or financials in 2008.

Only buy when you know for certain that a company is being mis-priced by the market, Apple (AAPL) is a good example, our paid members received a “Safe Buy” alert from us on June 28th when AAPL closed at $391.36, as I write this AAPL is trading for over $500, a 28% gain in less than 2 months! However we have plenty of friends who bought AAPL at $600, $500, and in the mid $400’s because they liked that it was down from $700, but it is more important to be patient and buy at the right time for the right reasons then to just buy a stock because it has fallen. For those looking for one of the safest stock suggestions in the world, please sign up for our free 30 day trial and we will get you our latest ‘Legacy Stock’ suggestion today, it is without a doubt a BUY!

#3 Lazy diversification. For some reason many people believe that diversification only applies to the cash you have in the stock market, but it doesn’t, it applies to your entire net worth. Diversification is not mutual funds or owning several stocks in different sectors, diversification should be a strategic cash flow and capital appreciation strategy.

Real Diversification

  • Gold as insurance 5-10%
  • Commodities
  • Stocks (mostly large cap)
  • Real estate rental properties
  • Businesses
  • Notes
  • Stock Options
  • Speculative Investments 2-5%
  • Retirement Investments (IRA, Whole Life Insurance, & Trust Deeds)

Think of your total net worth when diversifying, not just what is in your brokerage account. You really want to put 90-95% of your investments into cash flowing safe opportunities. More on that in mistake #1.

#2 Giving money to people who claim to be rich. This is a big one, because I have two types of people who come to mind, the first one is your broker, the fact is most brokers are broke. The next time someone asks to manage your money, ask them for their last years’ tax return. I am serious, remember you are their employer, this should be standard procedure. Never give investment capital to someone who isn’t dramatically wealthier than you are.

The second person is some random fellow who calls you out of the blue, introduces you (usually over the phone) to some important people you have never heard of and then presents an opportunity that ends with you wiring them money. I’ve been pitched so many times by friends who want me to invest in some oil wells, new cell phones, or other companies that are on the verge of making millions. In fact they even claim to have some expert or wealthy individual backing the project…Which always leaves me asking, if these guys are so rich and smart, then why are they calling me asking for $25k.

I was asked for as much as $100k back when I was in my early 20’s, my friend along with his fellow investors claimed to be partnered with an oil tycoon worth over 50 million dollars, to which I laughed because if you have $50 million, you don’t call 21 year olds to ask them for $100k. Avoid these type of opportunities, every single person I know who has invested in something like this has lost money. This goes for 99% of the MLM’s out there as well, I have yet to meet an average joe who comes out a millionaire.

#1 Turning every investment into a speculative bet. This is a big one that you must overcome if you want to become wealthy. I get way too many people asking me for price targets on everything I look at, this is the wrong way to approach investing. If you own a cash flowing business, stock, or rental property, then what does it matter how much it can potentially be worth. You need to focus on cash flow, not capital appreciation. Capital appreciation should be an after thought. If you focus on quality investments that deliver cash flow, the capital appreciation will come in due time.

Speculative investments like micro-cap companies should be 2-5% of your overall net worth in my opinion. The other investments you make should either have guaranteed returns or be ultra safe with reliable returns. Over time this strategy will make you financially free.

I hope these tips help you out, if you have any questions or comments please reply to this email.

Well time to run, we (FMT staff) are off to the beach to record some man on the street interviews. Look for some humorous and educational videos this weekend, we hope to have some fun while doing economic research in sunny Southern California.

Have a great week everyone.
Daniel Ameduri

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